There’s a “dirty little secret” within the Internet live auction industry; auctioneers don’t like to talk about it, Internet providers prefer to sweep it under the rug.

That secret is the proliferation of non-paying bidders.

“It’s a big problem,” said auctioneer Darren Julien. “It was 20-30 percent of our auctions when we used an online provider. That’s one of the reasons we went to our own platform in 2008.”

Many auctioneers credit live Internet bidding – through companies such as LiveAuctioneers and ArtFact – for saving their companies during a time of recession.

But, Internet live auctions both give and take.

Many auctioneers might contest Julien’s percentage of the level of online live auction fraud; however, one aspect of the problem is that when such an attack is made, it is more commonly the auction’s higher-priced items.

Beyond financial loss, the ramifications are major. Here is an example: In March 2012, several U.S. auction houses encountered “Tabbi Karim,” purportedly from London.

Karim made his presence known – in a big way – at Don Presley Auctions on March 3. Presley, who has a reputation in the business as a candid and savvy auctioneer, was calling bids at his Orange County, Calif. auction house. For Presley, it was a big sale: advertised as a “Once in a Lifetime Auction.” For Presley, who is not given to hyperbole, it was one of those landmarks in a 47-year-old auctioneering career.

Up for auction were Sevres and German KPM porcelain, a one-of-a-kind mosaic artwork depicting the Roman Forum, a 19th century sultan’s photo album containing pictures of his concubine, and even two imposing French harps.

Launching the auction at noon; Presley, calling bids in his inimitable style, was “knocking them out of the park.” Conducted worldwide by LiveAuctioneers, prices were eclipsing estimates as the bids kept rolling in. There was a “buzz” in the auction house, primarily driven by bids coming from throughout the world.

Julian Ellison, the CEO of LiveAuctioneers, also watched part of the auction, Presley said. “We were really happy,” Presley recalled. “We were
jumping around, celebrating. It was just a great auction.”

At the end of the day, Presley even gave each of his key staff members a $500 bonus. He went home elated.

The next day – a Sunday – Presley received a laudatory note from Ellison. “In his email, he congratulated me and added what a fine job that LiveAuctioneers did for me,” Presley said.

But such joy was short-lived. On Monday, the invoices weren’t rolling in as usual after a big sale. “I thought something was wrong with our printer,” Presley said.

But, no, it wasn’t a faulty printer. It was Tabbi Karim. Bidding from London, using LiveAuctioneer, Tabbi Karim had “purchased” about 240 lots totaling $540,000.

But Tabbi Karim, or whoever was doing the bidding had no intent of paying.

“Karim” may have been one person – or several people bidding from multiple computers. Presley was told that whoever illicitly bid up his auction was bidding through multiple computers with at least four portals open.

That put Presley into an auctioneer’s nightmare. The consignors, happy with the prices they saw soaring at the auction, were not kindly disposed to hearing that their items actually never sold. The underbidders, suspecting a scam, refused offers to purchase at the price they bid. Many of them accused Presley of “being in” on a sham auction.

“It’s real difficult going to the underbidders with a piece,” Presley said. “So, we decided that we’d just have another auction – we would just re-run the stuff that didn’t sell.”

In the meantime, Presley asked LiveAuctioneers to post a letter to those registered for the auction, explaining what happened. Ellison and LiveAuctioneers refused, Presley said.

But, the auction went on. The auctioneer’s hopes to placate consignors and “make peace” with bidders were to no avail.

“It was the biggest mistake of my life,” Presley said. “People came in and just turned up their noses. The items were no longer fresh … they were tainted. I even tried to sell a vase valued at $19,000 for $10,000, and no buyer fees, to a woman in New York. She wanted nothing to do with it … she still thinks I’m a crook.”

Ellison claims that LiveAuctioneers is only “the conduit” connecting bidders to auction houses. He said the company gives auction houses enough information to vet – and select – its bidders. LiveAuctioneers, Ellison said, states “up front” that it has no financial responsibility to the auction house.

“Don Presley let the flood gates open,” Ellison said. “We went out of the way to help Don … we’ve been there to offer assistance whenever we can.”

Presley disagrees. “They sloughed it off … it was my problem,” Presley said. “I absolutely believe (LiveAuctioneers) should take some responsibility, but it became abundantly clear after the auction that they didn’t feel the same way.”

However, Presley wasn’t the only auction house hit by “Tabbi Karim” that weekend. Chicago auctioneer John Toomey remembers Karim bidding at his auction; however, he was able to do enough damage control to limit the impact.

“Several auction houses were hit that weekend,” Toomey said. “I don’t know if Julian directly knew about it, but we never heard anything from LiveAuctioneers about the problem. You would think that if they had such unusual activity on a Saturday auction, they would alert auctioneers
who were conducting Sunday auctions … We ended up, on our own, alerting several other auctioneers about this possible problem.”

Sources say that as many as 17 auction houses were hit by Karim that weekend. “I don’t know if it was 17,” Toomey said. “But quite a few experienced problems.”

There were at least 13 auction houses hit by Karim that weekend, according to documents obtained by Antique Week. Six auction houses were hit by Karim on Saturday; Presley for more than half a million dollars; a bankruptcy auction lost nearly $23,000 in bids; a jewelry liquidation auction lost $5,550; and another general auction house lost $2,035.

The next day “Karim” ramped up for more illicit activity: More than $100,000 was lost at a fine jewelry auction to Karim; $38,320 in bids were lost by a Los Angeles auction; $13,625 was lost by a Florida auction house, and a jewelry and fine arts auction in California lost more than $10,000.

“Seventeen over one weekend? I find that hard to believe,” Ellison said. “I have never heard anything about this. And I am an extremely hands-on guy.”

Ellison said LiveAuctioneers monitors its clients “24/7” looking for unusual activity on their platform. He said staff at LiveAuctioneers routinely contacts individual bidders while an auction is in progress to confirm if the bidder is legitimate. He said the LiveAuctioneers staff, while monitoring auctions, contacts auction houses to alert them to unusual activities.

However, LiveAuctioneers customers – including Presley, Toomey, Leslie Hindman, Garth’s Auction and other auction houses – maintain they have never received such alerts.

“(LiveAuctioneers) shut down their offices for the weekend,” Presley said. “There’s nobody in the office I know of. They do leave us emergency in case the Internet goes down. I have used that number before … I remember we had (an Internet crash) problem. And then, I had to call them twice to get an answer … and that was a real emergency.”

There are auctioneers who are satisfied with the services provided by LiveAuctioneers. Jeffrey S. Evans, president of Jeffrey S. Evans and Associates, an auctioneer with gallery in Mt. Crawford, Va., reports a positive partnership. “LiveAuctioneers has given us a good value for their products. We’re pleased overall,” Evans reported. “They do offer their bidders with more privacy … but we haven’t seen a lot of non-paying bidder problems. Most of our auctions average about 700 to 800 lots, and we might have one to three lots that are due to non-paying bidders, but you could almost expect that even among bidders in the crowd.

“LiveAuctioneers certainly has brought in a higher number of bidders than Artfact … but we’re very careful. We run a check on new customers … Our experience in the past has been, if people stiff you on something, we then block them. We have had a couple sales where these bidders sign up under a different ID, but we’ve had enough information to block them when they register at our auctions.”

Presley does concede the possibly that LiveAuctioneers personnel may be monitoring auctions from outside its office; but, he has seen no evidence of such oversight.

Although Ellison does not acknowledge such problems, in December LiveAuctioneers sent a press release announcing the launch of “new technology” allowing auction houses to more closely vet the bidders they provide.

The primary feature was an “Experian” bar chart that rates how closely the personal information entered by a potential bidder – including the name, address, telephone number and more – matches with data in the credit bureau’s records. The press release is careful to note that the Experian bar is not a credit check, only a more “comprehensive bidder analytics” added to its package.

“The Experian thing is a joke,” said Amelia Jeffers, president of Garth’s Auction, summing up many auctioneer’s reaction to LiveAuctioneers’ latest technology.

One of the biggest “rubs” that auctioneers have with the Internet auction service is LiveAuctioneers’ policy of not sharing email addresses with client-auctioneers.

“We used to have access to email addresses, and that made it easier to vet bidders,” Auctioneer Leslie Hindman said.

“But LiveAuctioneers is always changing their practices, making it more difficult to see who is bidding.”

All the same, Leslie Hindman Auctions have had little problems with non-paying bidders.

“We don’t take chances,” Hindman said. “I have an auction coordinator extraordinaire who is very good at determining the legitimacy of a bidder … she is often here until 2 in the morning before an auction. We’re very aggressive.”

That “auction coordinator extraordinaire” Alexis Sutcliffe not only tracks down bidder legitimacy before an auction, but also manages a staff that monitors each on-going auction.

“The main problem is that to get to the bidding history you almost need to have access to emails,” Sutcliffe said. “I take the best information I have available and triangulate the factors to see if they all match up. We could call LiveAuctioneers for more information – like email addresses – but, that’s information they don’t want to give out.”

Ellison said he quit giving email addresses of registered bidders because auction houses were using those addresses to “spam” those contacts during later auctions.

He added there was a fear that LiveAuctioneers could be in violation of privacy laws.

“It came to our attention that our clients (bidders) were being constantly spammed by auction houses,” Ellison said. “The level of complaints from our bidders went through the roof. We had to do something immediately. We didn’t want LiveAuctioneers to be regarded as a mass spamming site, so we had to do something fast.

“That’s when we quit giving out email addresses, and rolled out a messaging system where the auctioneers could communicate with the bidder. There were also certain privacy issues involved … but at the end of the day, no one likes change.”

Presley, now, has hired additional personnel to vet bidders and monitor his auctions.

Other auctioneers, such as Hindman, Garth’s and Toomey, hire additional skilled staff at extra expense to guard against non-paying bidders.

“It would be lovely,” Hindman said, if her company could find a platform which would accurately vet and monitor her auctions.

“It’s a fine line we walk,” Toomey said. “We are here to give our consignors the best price and, at the same time, protect their interests. It’s not always the easiest job.”